Market timers changing their tune

Some believe investors should switch to buying

It's time for a change of heart on the stock market, say some investment newsletter writers who have wisely sat out the last year or more.

Their shift in advice may have brought thousands of individual investors back into the market in recent weeks. It also is rekindling the debate over the merits of such timing strategies.

Among the widely followed stock newsletter editors who have turned bullish are Bob Brinker of the Marketimer letter in Henderson, Nev., and Dan Sullivan of the Chartist newsletter in Seal Beachm, Calif.

Professional market timers balk at the idea of buy-and-hold investing through good markets and bad. Instead, they seek to ride bull markets and avoid bear declines by making timing calls based on signals from models they devise, which might include chart patterns of market indexes, for example, and interest rate trends.

Many financial planners view timing strategies with skepticism, saying adherents can miss the big gains that often come suddenly in the stock market--sometimes over a period of a few days, before many timing models can turn positive.

Still, timers often have loyal followings. And more of these services have turned bullish on the market over the last month as Wall Street initially rallied with the onset of the war in Iraq, according to Mark Hulbert, editor of the Hulbert Financial Digest in Annandale, Va., which tracks investment letters.

Other newsletters that have become more optimistic on the market include On the Money, No Load Mutual Fund Selections & Timing, Index Rx, Todd Market Forecast and P.Q. Wall's On-Line Forecast, Hulbert said.

On March 10, model portfolios in Hulbert's index of 50 timers had average stock market exposure of minus 19 percent. A negative reading indicates many of the timers were advocating "shorting," or betting on lower share prices.

By April 11, the average market exposure was 46 percent. Hulbert said the one-month swing in the index was the sharpest he could remember.

Brinker and Sullivan rank as two of the most accurate market timers by Hulbert's tally.

Brinker issued a buy signal March 11, after being bearish since January 2000. His decision to exit when he did, two months before the bull market peak, helped followers avoid much of the portfolio damage of the last three years.

Before his January 2000 call, Brinker had been "unambiguously bullish" through the 1990s, Hulbert said.

This time, Brinker caught the prewar bottom in the Dow Jones industrial average, which closed at 7524 on March 11. At a close of 8351 on Monday, the Dow is up 11 percent since then.

Brinker, whose service costs $185 a year and who also hosts a weekly personal-finance radio show heard nationwide, said he believes the market began a "cyclical" bull move in March that will last one to three years.

He advised his most aggressive clients to change their portfolios from 65 percent cash and 35 percent stocks to 100 percent stocks.

He said he made that call based on his analysis of market index chart patterns and his fundamental view of the economy.

But the longer-term outlook isn't upbeat, Brinker said.

"It's my view that we ended the mother of secular bull markets in the first quarter of 2000 after almost 18 years," he said.

Now, the market faces a "secular bear" period that could last from 8 to 20 years, Brinker said, with alternating bull and bear cycles within it.

Lance Fogan, a retired doctor who lives in Valencia, Calif., said he has been following Brinker's advice for 10 years.

In 2000, when Brinker advised exiting the market, Fogan said he shifted his portfolio to about 75 percent cash accounts and bonds, leaving about 25 percent in stocks. "He did right by me," Fogan said.

When Brinker made his March call to increase portfolio stock weightings, Fogan says he was apprehensive. "I'm not that confident about the economy," he said.

But he followed the advice and increased his stock allocation, he said, because of Brinker's long-term record.

Sullivan, who said his $175-a-year newsletter has 6,500 subscribers, turned more positive on stocks April 9. He had been out of the market since February 2002.

In his latest call, he advised clients to deploy half their cash reserves across 16 individual stocks and leave the other half in cash.

Despite his longer-term record, Sullivan said the market has confounded his timing calls several times during the last three years. "It's been rough," he said. "The volatility just chewed me up in 2000 and 2001."

As a consequence, Sullivan said he has tweaked his timing models in the last year or so. Rather than use major index performance and interest rate trends to make broad market calls, Sullivan said he is focusing on stocks with strong momentum, analyzing their chart trends and making buy and sell decisions based on their individual merits.